Find out how open banking will make you love your bank again

5 January 2018

Sunetra Chakravarti talks to Thomas Egner, Secretary General of the Euro Banking Association (EBA) about the future of open banking.

What does open banking mean?

The phrase ‘open banking’ does not have a fixed definition. You could come along with a broad approach – granting access to third parties to the bank accounts of individual customers for the sake and use of content, so that those third parties can provide better services to bank customers, could be one way of describing open banking. For us, open banking is how banks are opening up and sharing services and functionality.

What is the potential impact of open banking on data sharing?

Data sharing is the cornerstone of open banking. Owing to the scale of the organisations involved, the rather simple question about its remit has a multi-layered answer. Technical, legal, governance and data validation are all responsible for bringing effective data sharing together.

Banks have to look into their own IT architecture and software to cater to the technical layer: how data sharing will actually take place – the cogs and wheels of the setup.

Validating information is another crucial component. If the banking industry opens up, open banking will have to be run so that banks and service providers are not faced with thousands of rules and regulations to do business.

And of course there is the question of governance too. Opening up systems means testing on loop. The test functionalities should be adequate for third parties to create and run and to make sure the system works as it is supposed to. Sound governance is absolutely key to the role – to operate decent change management.

Finally, legal forms the last of the layers that make up the core of open banking.

What are the key benefits of open banking for customers, banks and businesses?

The real value to customers is the centric view of finances that they get. Account consolidation will mean they only need one interface for all their financial transactions.

In what could be a big opportunity for banks, the potential to act as the service provider for the dashboard could really help banks mould, shape and manage their customers’ perception of them. Banks could then leverage their service profile into products they would like to sell to the dashboard users in the future.

The business benefits would vary depending on its type – but it would be vastly useful for the customer to use the same dashboard structure for both their personal as well as business needs. Greater understanding of the functionality and controls afforded to the customer would allow them to become an advocate of the system.

It would also help them transition to a web service-based relationship with their banks, which is always more secure, and have their data gathered in a more automated way.

Why is open banking the way forward for payments players from both consumer and bank perspectives?

Consolidation of financial transactions is key to bringing in different functions. From the service provider’s point, it is customer experience, expansion and bespoke offers for customers. While for customers, it is the ease of doing business.

Banking is a networking business. Collective offerings help with efficiency and governance. To find the right balance and be able to look at everything requires a community based approach because the collective view offers a big dimension. To think big, banks cannot do this without having agreed on cross industry standards first.

What are the collective requirements for a well-functioning open banking ecosystem?

The creation of a balanced open banking ecosystem hinges on the technical layer. The creation of an interface standard that all banks could employ is imperative. Proper governance and an agreed change management system of standards will further help steer the adoption of the system.

Once we talk about these things, the legal and governance framework and operational issues that come with standardised APIs also come into sharp focus. It will lead to the development and adoption of machine-to-machine communication, which cannot be dealt with as an individual web project.

What initiatives should be taken forward, and what are the next steps?

If you talk about initiatives, it is twofold. To start off with, an internal initiative could look at open banking and spell it out for all the stakeholders. We have published reports on open banking and they have been vastly helpful in getting banks to understand that collaboration will be crucial in driving this through.

The open banking initiative in the UK will look into the topic from an organisation’s perspective – very helpful when the whole banking industry comes together.

It will also showcase how we run an open forum in banking; helping create transparency in the market as well as promoting the sentiment of co-working and collaborative working.

As for data-related interactivity, it will form part of the external initiative. A good example of this would be the Regulatory Technical Standards (RTS) on strong customer authentication and common and secure communication. These were mandated under the revised Payment Services Directive (PSD2) and developed in close cooperation with the European Central Bank (ECB). This collaboration could then pave the way for an open and secure market in retail payments in the European Union.

Payment as an area is where networking works best. In our vision of open banking, banks will not just be on the supply end, they can also use the concept and data to improve themselves by looking at customer data collected from other banks.

They can choose to act passively or actively here – either providing data or actively developing themselves so their product portfolio can compete with any other service provider in the market as a means of safeguarding their customers.

In fact, banks can even fashion themselves as security champions, something that’s currently not being discussed as part of open banking. Data protection is not yet on the agenda of open banking, but needs to be discussed. Right now, the upcoming discussion is around GDPR, and what its impact will be come May next year.

Ultimately, open banking pushes a service proposition. A shared economy can look at lots of topics that need to be jointly tackled, and that’s where the European Banking Association sees a bigger role.

Data protection and cyber-security are the areas where, in the end, not every organisation will find a good solution working in isolation. They will have to work together.